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Egypt’s non-oil exports are improving but not as much as experts might have wished

Niveen Wahish , Sunday 25 Aug 2019
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(Photo: Ahram Weekly)
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Egypt’s non-oil exports grew 2.3 per cent in the first half of 2019 to $13.04 billion, up from $12.75 billion during the same period last year, according to figures released by the General Organisation for Export and Import Control (GOEIC).

“The growth rate is not high enough, but it is good to see progress,” Sherif Fahmy, general manager at NGage Consulting, told Al-Ahram Weekly, adding that according to the International Trade Centre’s Trade Map website there was an untapped export potential for Egypt worth $18.3 billion in countries like Saudi Arabia, the UK, Italy, the US, France, Spain, Turkey, Russia and some Arab countries.

Compared to other middle-income countries that started at the same level or below in the early 2000s, Egypt’s exports-to-GDP ratio remains much lower, the World Bank’s Egypt Economic Monitor July 2019 report has said.

 It showed that Egypt’s exports of goods fell from 17 to 5.6 per cent of GDP between fiscal years 2006 and 2016, although they picked up again in 2018 to reach 10.3 per cent of GDP. Egypt exported around $25 billion worth of goods in fiscal year 2017-18, 65 per cent of which were non-oil exports.

Many had hoped that the floatation of the pound, which caused it to depreciate by 50 per cent, would work in favour of Egyptian exports because it would mean they would be sold at more competitive prices. However, that improvement was only meagre.

 “Other countries have seen their exports reacting more sensibly to a more modest currency depreciation, while a significantly larger depreciation in the Egyptian pound was only followed by an export increase of 16 per cent in about a year’s time,” the report said. 

This was because around the time the Egyptian pound depreciated, the currencies of its competitors, such as Turkey, saw a sharper depreciation of their currencies, said one economist who preferred to remain anonymous. Moreover, in more recent months, the pound appreciated by around 10 per cent, causing exports to lose part of their competitive edge, he added.

The depreciation of the pound has not caused a large difference to exports also possibly because it has meant that the cost of raw materials needed in the manufacturing process, much of which are imported, has increased, thus leading to more expensive end products, Fahmy added.

Another element affecting Egyptian exports is demand in world markets. According to the economist who spoke to the Weekly, slow world growth in the past couple of years has affected demand, especially in top destinations for Egyptian exports such as the European Union and the Arab countries, with the latter also affected by historically low oil prices.

 Global growth is projected at 3.2 per cent for 2019, improving to 3.5 per cent in 2020 according to the International Monetary Fund (IMF). For advanced economies, growth is projected at 1.9 per cent in 2019 and 1.7 per cent in 2020.

Tapping global markets could get harder for exporters as weak economic data from Europe and Asia do not bode well for the future of world growth, and fears of a recession are looming on the horizon, the economist pointed out.

Tensions between the US and China have been escalating since last year as US president Donald Trump announced the imposition of customs tariffs worth billions of dollars of Chinese goods and China retaliated by buying some US goods and imposing tariffs on others. 

Attempts to bring the two sides together to conclude a trade deal have so far not succeeded.

On a more optimistic note, Fahmy said that tensions in global trade created by the US-China rivalry could benefit Egypt in an indirect way. The trade war could act as an opportunity for Egypt to sell more to some countries instead of their rivals, he said. Since high duties were now imposed on imports of US fruit, China could import fruit from Egypt, Fahmy suggested.

The economist who spoke to the Weekly said a clear industrial strategy was needed in Egypt whereby more medium and high-tech industries were encouraged for there to be a breakthrough. Currently, Egypt’s exports were mostly primary commodities and low-tech products, he said, and the country exported a limited number of sophisticated goods. 

The majority were peripheral goods like crude and refined petroleum, precious metals, agricultural products, textiles and construction material, the World Bank report said. “Only a few products in which Egypt specialises and expands are matching the growth of global demand,” it said.

More foreign direct investment (FDI) is needed in the industrial sector, the economist said. Currently, most FDI is in the oil and gas sector, real estate and retail. 

Fahmy agreed on the necessity of a clear industrial strategy and stressed that it must be devised in collaboration with the private sector. He wanted to see Egypt adopt policies similar to China, whereby an export-oriented industrial strategy was in place and there was an expansion in export credit. 

Fahmy also wanted to see the product mix for export balance between traditional products and those with high value-added and preferably higher technology content or tech-intensive.

Moreover, Fahmy said there needed to be more awareness of Egypt’s free-trade agreements and export-incentive programmes, as well as of investment incentives and the need for new incentives to encourage manufacturers to increase their production to produce a surplus for export.

Egypt is signatory to many free-trade agreements, such as the Egypt-EU Association Agreement, the Common Market for Eastern and Southern Africa (COMESA), and the African Continental Free Trade Area (AfCFTA). It also has free-trade area agreements with Turkey and the Mercosur countries in Latin America.

It is signatory to the Agadir Agreement that includes Morocco, Tunisia and Jordan. A breakthrough in the field of exports would be seen when there was greater awareness of the benefits and preferential treatment that the free-trade agreements could bring about, added Nour Mortada, an analyst with NGage Consulting.

Export support is another positive factor. In July, the government’s Export Development Fund (EDF) approved a new mechanism to support exports for fiscal year 2019-20. With a LE6 billion budget, the EDF offers incentives to exporters to help them improve their competitiveness in foreign markets. 

The economist who spoke to the Weekly believes this support is much needed and more funds must be dedicated to it. However, he believes that it should not provide blanket cover for all exporters but should instead go in tandem with the industrial strategy whereby it would encourage industries that Egypt wants to promote. 

He said the best option would be to support industries where there was a clear value-added in the manufacturing process.

Increasing this was also the only way to cut the imported component of exports, he said. Egypt’s total imports stood at around $63 billion in fiscal year 2017-18, more than double total exports. 

Around 80 per cent of imports were non-oil goods. Total imports had dropped to around $57 billion in fiscal year 2015-16 on the back of shortages in hard currency and later following the floatation of the pound, but then they had begun creeping up again. 

If exports increase, imports too are bound to increase because they make up a large per cent of locally manufactured end products, he added.

Of the government exports support programme, Mortada believes the new programme is better structured than the old in the sense that it was formulated after consulting with the export councils and gives alternatives to refund exporters. 

The incentives are either direct cash refunds or settlements with the ministry of finance and amounts owed to utilities like electricity, water and gas.

 In addition, she said the programme also granted support to exporters when they comply with the minimum local added-value requirement, as well additional incentives for those that increase their volume of exports and operate in rural areas and areas that are in need of development like Upper Egypt. 

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